Tax the problem, not the solution, Mr Hammond

The Chancellor has an opportunity in the upcoming Budget to set out a tax framework on plastics and recycling that makes the UK a world leader in sustainable resource management.

We have an indication of some of the measures he might consider in the summary of responses to the Treasury’s consultation on tackling single-use plastics.

These relate to using tax to boost the demand for recycled plastics, encourage design for recycling, tackle specific single-use plastics that are commonly littered, and encourage greater recycling of waste that is currently incinerated.

These are important areas. ESA has long lobbied the Treasury for measures to support secondary materials markets, and incentivise eco-design as well as reduction and re-use measures, and it appears that they are now listening.

It’s also important to ensure that all parts of the waste management system work together and reflect the waste hierarchy.

It is no doubt with this in mind that the Treasury wants to explore whether or not the right incentives are in place to ensure that recycling’s environmental superiority to energy recovery is aligned with financial considerations.

Indeed, this was the aim of the Landfill Tax, introduced in 1996. It made recycling a more affordable option for waste management, taking our recycling rates from near zero to around 45% today.

It also encouraged diversion of residual waste to energy recovery, which today per tonne saves 200kg of CO2 and generates 575kWh of electricity.

The Landfill Tax is therefore a huge success story for environmental taxation and waste management policy, and it’s easy to see why extending the tax to Energy from Waste (EfW) is appealing.

It would replace declining Landfill Tax revenue, and it’s hoped after years of stagnation in recycling rates, it would provide the next boost we need in the transition to a circular economy.

Certainly, it would provide a nice revenue stream for the Treasury, but would it actually boost recycling?

The real barrier to recycling is sustainable end markets. Recycling does not compete with EfW, it competes with virgin material. Recycling should be the cheaper option to EfW, and policy can assist here, but this must be by enabling better quality recycling and making recycling more profitable by stimulating demand.

Taxing EfW would therefore tax the wrong end. It would do nothing to address quality and end markets, and therefore nothing to reduce the need for residual waste treatment, thereby only inflating costs of waste management.

Given that over 80% of waste sent to EfW is from local authorities, these costs would be passed through to councils that are already facing increasing pressures on waste management budgets and are struggling to maintain service standards.

It should also be noted that many of the countries with exemplary recycling rates of over 50% (eg, Germany, Belgium, the Netherlands) also have high levels of energy recovery, suggesting that EfW is not a barrier to recycling.

Taxing EfW does not boost recycling

Other countries have experimented with incineration taxes, but have not seen the desired results. Norway introduced an incineration tax in 1999, but simply saw an increase in RDF exports to Sweden.

Sweden introduced a tax in 2006, but a government-funded review in 2009 found that it had ‘only small effects, if any, on the amount of generated household waste, on the degree of material recycling’.

The report concluded that ‘the existing waste incineration tax appears to be a purely fiscal tax; ie, it almost entirely lacks steering effects’. As a result, Sweden abolished the tax in 2010, and Norway followed suit so as not to increase its exports further.

Eight years later, an incineration tax is once again being considered in Sweden; however, a report last year commissioned by the Swedish government again made the point that a tax would be purely fiscal and ‘not a functional and cost-effective means by which to encourage more resource-efficient and non-toxic waste management’.

Making polluters pay

It is right that landfill is taxed because it is the more polluting option for residual waste management. However, while we still have residual waste, the greenest solution for its treatment should be encouraged, and this is currently EfW.

More can and should be done to get recyclables out of residual waste, but to truly follow the polluter pays principle, the production of hard-to-recycle material should be targeted, which can most effectively be done through strengthening extended producer responsibility.

While the appeal of a fiscal measure to replace dwindling landfill tax revenue must be tempting for the Treasury, an incineration tax would not change behaviour, but would simply increase costs of waste management, hitting local authorities hardest.